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Tickers in this Article: GMCR, SBUX, CBOU, SJM
The temperature is getting hotter in the kitchen for Green Mountain Coffee Roasters (Nasdaq:GMCR). Green Mountain, the maker of the Keurig single-serve coffee brewers, has seen its stock price rise 46.7% over the course of the last year. Over the last five years, the stock is up a ridiculous 1,285.0%. Investors looking for a pullback in this stock have been waiting a while, but finally got their opportunity on Thursday as the stock shed 7.7%.

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A Battle Brewing
The drop in the price of GMCR shares seems to have been triggered by an internal memo at Starbucks (Nasdaq:SBUX) from the company's CEO Howard Schultz. Various media outlets have reported that the memo indicated that Starbucks is readying itself to take aim at the single-serve coffee market that has been dominated by Green Mountain for some time now.

Although the specifics of Schultz's plan are unknown to the public at this time, Schultz did indicate in his memo that the single-serve market is a $4 billion segment and is growing faster than any other segment in the global coffee industry.

Caribou Coffee Company (Nasdaq:CBOU), another competitor of Starbucks, already produces K-Cups that are compatible with Keurig brewers. Investors trying to gauge the current health of the coffee market need to look no further than Thursday's fiscal Q3 earnings release from J. M. Smucker (NYSE:SJM) which showed that the company was able to pass off higher coffee prices to consumers in order to top analysts' estimates.

The sector has already been immensely profitable for Green Mountain Coffee Roasters, which has been posting staggering top line and bottom line growth. In its recently reported Q1, the company put up a 67% increase in non-GAAP operating income over the prior year quarter. Net sales also surged 67% over the same time period.

The Bottom Line
It could be some time before we see how this battle between Green Mountain and Starbucks will play itself out. One thing seems to be certain, though, and that is that Starbucks is not going to sit back and let Green Mountain have a free pass in the single-serve market.

Starbucks is already making moves and last Tuesday it announced a deal in which it will partner with Courtesy Products to bring its coffee in a single-serve format to guests in 500,000 luxury and premium hotel rooms across the U.S. The question of the hour now is what the company's next move will be on the single-serve front? (Reading between the lines to decipher a company's true financial condition is the key to understanding earnings reports. Check out How To Decode A Company's Earnings Reports.)

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